Losses changed investor's life

Karen Ewing lost more than money when Lydia Cladek's investment business went bust on March 31.

Not that the money was insignificant.

"A chunk," she said. "We lost a large chunk. The kind of chunk that changes your lifestyle.

"It changes your plans for the future."

Lydia Cladek Inc. was a subprime automobile investment company that had an office at the Sea Grove Town Center in St. Augustine Beach

The business bought consumer finance contracts from various auto dealers at a discount, as low as 60 percent of the contract price. Consumers paid up to 29.5 percent on their contracts. Investors were receiving up to 18 percent for the money they put in to buy up the discounted notes.

"There was a point," Ewing said, "where there were so many people clamoring to put their money into this investment that Lydia had to say, 'I can't take any more new investors. I've got to find more car notes. So I'll put you on the waiting list.'"

Getting put on hold like that only made potential investors more eager to write checks to Lydia Cladek. They stayed eager for years.

All for nothing

But, in the end, it was all for nothing.

After agents with the FBI cordoned off the business on March 31, several investors said, Cladek had accumulated nearly 1,400 creditors who were owed an estimated $100 million.

Some of those creditors filed an involuntary Chapter 11 petition against the company on April 2 in U.S. Bankruptcy Court in Jacksonville.

(Chapter 11 of the U.S. Bankruptcy Code permits reorganization under the country's bankruptcy laws.)

On April 7, 29 creditors filed an emergency motion to appoint a Chapter 11 trustee.

"When the court appointed a trustee," Ewing said, "we all went to the meeting at the Federal Courthouse in Jacksonville. What just floored me is (the trustee) said, 'Well, folks, I hate to tell you. But the business never made a nickel.'

"So that right there makes you realize that the investment checks coming in had to pay for each monthly check going to investors -- which is a Ponzi scheme."

Cladek has not run the business, and has seldom been seen in St. Augustine, since the FBI seized files, file cabinets and computers from the office on March 31.

After searching the office at 108 Sea Grove Main Street, agents also searched Cladek's oceanside home in Sea Colony.

A spokesman with the FBI confirmed that the investigation into the business was still going on but couldn't comment further.

Ewing came by the realization reluctantly that her money was gone. After all, the women had become good friends.

She met Cladek in the mid-1990s when the two took a course at the Center for Positive Living in St. Augustine.

'Dedicated'

"I found she was very dedicated, very focused, very spiritual," said Ewing. "She had a great sense of humor. She was very enjoyable to be around."

Ewing was reluctant at first to invest because of the high interest rate being charged people "who were kind of down on their luck."

"Lydia told me, if it wasn't for this business, they wouldn't have the opportunity to get a car and get back on their feet," Ewing recalled.

The two women met to seal the deal. Cladek gave a promissory note to Ewing, who turned over a check for $10,000.

"It worked out very well," said Ewing. "She (later) gave me a check for the full amount. No problem.

"Through the years, I was in and out of being an investor. I would take my investment out, then put it back in. I always received my interest check. My investment grew."

One of Ewing's main goals in investing her money was to help the "family welfare system" prosper.

"We've always been believers that ... you have to try to grow (savings and investments) so that, when someone needs an education, a first home ... or elder care, you've got the money to help."

Ewing and other investors knew all about fly-by-night schemes and had heeded well the admonition that begins, "If something sounds too good to be true. ..."

That's why they kept a close eye on their money.

"When you're building a business like this, the most important thing to do is get people their checks on time so they can tell others what a wonderful investment they found," Ewing said. "The investment grew and grew through word of mouth because it was working."

The investors did research; they talked to others.

And they talked to Cladek.

"I never -- never -- would have invested in a business of this type if I hadn't known Lydia," said Ewing. "I had known her for years. I believed in Lydia. I thought the world of her.

"We used to tell her, if you ever sell this business, we don't want to be involved. You are the reason we are involved."

Renowned philanthropist

Many investors also appreciated Cladek's apparently generous nature.

She gave large sums for the rescue and care of animals, to feed the hungry and help support the Center for Positive Living.

Cladek set herself up "to be a benefactor, a philanthropist of renown," Ewing said. "People just admired (her).

"Well, come to find out, it was our money."

The investors' checks began arriving in the mail erratically. Then they stopped.

Three investors went to see Cladek and ask if she had ever considered retiring.

"She said to us, 'It would be really hard to give up this cash flow,'" said Ewing.

As the extent of the damage became known, Ewing tried to decide if her friend got tempted by so much cash flowing in or had intended to take advantage of investors all along.

She seems to have decided.

"You do have to get a business like that rolling before you can pilfer it," she said. "I thought she was the most wonderful person and a good business person.

"As it turns out, she wasn't a good business woman at all.

"Investors were actually collateral damage. She became a self-made woman of substance and charity on the backs of hard-working people. Actually, her only success was laying the foundation for a successful Ponzi scheme."

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